International Herald Tribune

Sony and Bertelsmann said Tuesday that they would unravel their joint venture in music, ending a four-year partnership that has generated more dissonance than harmony.

Sony, based in Japan, will buy Bertelsmann's 50 percent stake in the venture, Sony BMG Music Entertainment, for $900 million - substantially less than Bertelsmann, based in Germany, hoped it would command.

Behind the long-anticipated deal are two sharply divergent views of the future of recorded music.

For Sony, the acquisition represents a gamble that, after years of upheaval amid the emergence of digital technology, the music industry will regain its footing. Sony BMG's revenue had continued to erode, though its profit had improved lately, mostly because of rigorous cost-cutting.

For Bertelsmann, the deal represents a retrenchment from traditional media as it builds up its less-glamorous service businesses. The company will retain rights to 200 European artists, giving it a toehold in a field it once dominated. But the sale suggests that it sees more storm clouds ahead.

Under the terms of the partnership, either Sony or Bertelsmann could have forced a sale next year, and executives at Bertelsmann said they worried that the industry might deteriorate further by then.

By folding BMG into its operations, Sony would be within striking distance of Universal Music as the world's largest music company. Sony's roster of stars includes Alicia Keys, Avril Lavigne, and Justin Timberlake.

Eventually, industry executives said, Sony would combine its huge Japanese music company, which had been kept separate from the partnership, into a new entity, Sony Music Entertainment, along with the assets it held with Bertelsmann.

'It's a less-risky business,' the Sony chairman, Howard Stringer, said of the music industry. 'The advent of the cellphone as a conveyor of music globally takes away a lot of the risk.'

With other new forms of distribution, like Sony's PlayStation Network, as well as huge markets in China and India, Stringer said he could envision an era of growth for the industry, even as he acknowledged that sales of compact discs would continue to decline.

'That's worth a gamble,' he said, 'especially when we did not have to break the bank to get the deal done.'

Stringer's argument gets a respectful hearing from some experts.

'It's a smart deal for Sony,' said Porter Bibb, an investment banker who specializes in media. 'The music industry hasn't died. It's getting huge amounts of downloads, and more people are learning how to monetize it.'

Bertelsmann had once hoped to sell its share of Sony BMG for as much as $1.6 billion, according to industry executives. But in a difficult market, it settled for a $600 million cash payment, plus $300 million in cash in the venture that belonged to Sony. It will also get its share of the cash in the venture - $300 million - as well as some tax benefits.

Bertelsmann said it could use the proceeds for investments in new businesses, including education, which has become a focus under the company's chief executive, Hartmut Ostrowski. Last month, Bertelsmann sold its North American book and record clubs to a private investment firm.

Thomas Rabe, Bertelsmann's chief financial officer, who engineered the deal, said, 'It's a matter of putting priority on the investments you want to make.' Rabe added, 'Sony is a natural owner of these assets.'

By keeping the rights to European artists, a business that generates less than $20 million a year, Rabe said Bertelsmann would be able to exploit a part of the music industry with decent prospects - and one that dovetails with its growing emphasis on services. 'We will administer the rights of artists and act as a service provider to artists and other holders of rights,' he said.

For much of its short life, Sony BMG had been a test case for the perils of joint ventures. It suffered early from feuding between Sony and Bertelsmann, much of it revolving around its first chief executive, Andrew Lack, a former television executive and friend of Stringer.

In early 2006, Lack was succeeded by Rolf Schmidt-Holtz, a former chief of BMG, who had been nonexecutive chairman of the venture, with Lack moving up to the chairman's seat.

Schmidt-Holtz smoothed out the tension between the partners, though he ruffled feathers on the Sony side by forcing out two of its most senior label executives, Don Ienner and Michele Anthony.

On Tuesday, Stringer praised Schmidt-Holtz, saying he had managed to unite a venture 'that used to be two companies, existing in parallel.' He did not say, however, whether Schmidt-Holtz would remain in his job beyond his current contract, which runs until next year.

Schmidt-Holtz declined to comment.

For the artists signed to Sony BMG, the change in ownership, which must be approved by regulators, will mean relatively little. But Stringer said the music company would work more closely with other Sony divisions to find new ways of exploiting and distributing music.

'We can expand the horizons of music,' he said, citing 3-D movies, like the U2 concert film released recently by National Geographic Entertainment. 'It's easier to do that with full control,' Stringer said. 'With partners, there are bound to be divergent agendas and interests.'